The Big Failure of Small Government

It is no coincidence that countries with mission-driven governments have fared better in the COVID-19 crisis than have countries beholden to the cult of efficiency. Effective governance, it turns out, cannot be conjured up at will, because it requires investment in state capacity.

LONDON – Decades of privatization, outsourcing, and budget cuts in the name of “efficiency” have significantly hampered many governments’ responses to the COVID-19 crisis. At the same time, successful responses by other governments have shown that investments in core public-sector capabilities make all the difference in times of emergency. The countries that have handled the crisis well are those where the state maintains a productive relationship with value creators in society, by investing in critical capacities and designing private-sector contracts to serve the public interest.

From the United States and the United Kingdom to Europe, Japan, and South Africa, governments are investing billions – and, in some cases, trillions – of dollars to shore up national economies. Yet, if there is one thing we learned from the 2008 financial crisis, it is that quality matters at least as much as quantity. If the money falls on empty, weak, or poorly managed structures, it will have little effect, and may simply be sucked into the financial sector. Too many lives are at stake to repeat past errors.

Unfortunately, for the last half-century, the prevailing political message in many countries has been that governments cannot – and therefore should not – actually govern. Politicians, business leaders, and pundits have long relied on a management creed that focuses obsessively on static measures of efficiency to justify spending cuts, privatization, and outsourcing.

As a result, governments now have fewer options for responding to the crisis, which may be why some are now desperately clinging to the unrealistic hope of technological panaceas such as artificial intelligence or contact-tracing apps. With less investment in public capacity has come a loss of institutional memory (as the UK’s government has discovered) and increased dependence on private consulting firms, which have raked in billions. Not surprisingly, morale among public-sector employees has plunged in recent years.

Consider two core government responsibilities during the COVID-19 crisis: public health and the digital realm. In 2018 alone, the UK government outsourced health contracts worth £9.2 billion ($11.2 billion), putting 84% of beds in care homes in the hands of private-sector operators (including private equity firms). Making matters worse, since 2015, the UK’s National Health Service has endured £1 billion in budget cuts.

Outsourcing by itself is not the problem. But the outsourcing of critical state capacities clearly is, especially when the resulting public-private “partnerships” are not designed to serve the public interest. Ironically, some governments have outsourced so eagerly that they have undermined their own ability to structure outsourcing contracts. After a 12-year effort to spur the private sector to develop low-cost ventilators, the US government is now learning that outsourcing is not a reliable way to ensure emergency access to medical equipment.

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Meanwhile, Vietnam’s successful approach to COVID-19 has emerged as a striking contrast to the US and UK responses. Among other things, the Vietnamese government was able to amass low-cost testing kits very quickly, because it already had the capacity to mobilize academia, the army, the private sector, and civil society around a common mission. Rather than simply outsourcing with few questions asked, it used public research and development funding and procurement to drive innovation. The resulting public-private collaboration enabled rapid commercialization of kits, which are now being exported to Europe and beyond.

New Zealand is another success story, and not by coincidence. After initially adopting the outsourcing mantra in the 1980s, the New Zealand government changed course, embracing a “spirit of service” and an “ethic of care” across its public services, and becoming the first country in the world to adopt a wellbeing budget. Owing to this vision of public management, the government adopted a “health first, economy second” approach to the current crisis. Rather than seeking herd immunity, it committed early to preventing infection.

Similar lessons apply to data and digital technology, domains in which governments’ performance has varied widely. In Pakistan, citizens were able to apply for emergency cash transfers (made available to an impressive 12 million households) directly from their mobile phones, whereas Italians have had to print out self-evaluations to show that they are complying with lockdown rules.

To be sure, South Asian governments have benefited from the institutional memory built up during the 2002-03 SARS epidemic, which also altered public attitudes about privacy. But many of these countries also have invested in their core data capabilities, which have been particularly effective when facilitating decentralized action. South Korea, for example, adopted an aggressive high-tech tracking approach, and published real-time data on mask stocks and pharmacy locations, allowing start-ups and ordinary citizens to create add-on services to ensure more effective and safe distribution.

The contrasts between the US and UK, on the one hand, and Vietnam, South Korea, and New Zealand, on the other, offer important lessons. Far from retreating into the role of fixer of market failures and outsourcer of services, governments should invest in their own critical faculties. The pandemic has laid bare the need for more state productive capacity, government procurement capabilities, symbiotic public-private collaborations, digital infrastructure, and clear privacy and security protocols.

Such a mission-driven approach to public administration should not be confused with top-down decision-making. Rather, it should be viewed as the best way to ensure dynamism, by nurturing fruitful relationships between innovators and tapping into the value of distributed intelligence. Governments that have long abdicated their duties to the private sector now need to catch up, which will require them to rethink intellectual-property regimes and their approach to R&D and public investment and procurement more generally.

Why, to take one real-world example, should a low-cost ventilator that has been approved by regulators in Japan not be readily accepted by other countries? Clearly, in addition to a renewed role for national governments, we need an international clearing house for grassroots and citizen-led solutions.

In any crisis – financial, public-health, or climate-related – a lack of choice drastically limits the public sector’s room to maneuver. After years of pursuing a misguided governance model, policymakers around the world surely are lamenting the lack of in-house know-how and resources to deploy the digital tools needed to save lives. Effective governance, it turns out, cannot be conjured up at will.

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Prof. Mazzucato routinely uses her bully pulpit here to advocate for government as the engine of innovation. I have a three-word answer (OK 4) for her -- "Centers for Disease Control." Mazzucato might profit from studying the series of fiascos at the CDC -- and how they cost the country a month or two to prepare for the onslaught of Covid19.

In late February, C.D.C. Director Robert Redfield said that "the risk to the American public is low.... Until the last case that we just had in Sacramento we hadn’t had a new case in two weeks." But that was like the story of the drunk who looks for his lost keys under the streetlight. It seems not to have occurred to Redfield that if the C.D.C. blocked private testing and failed to carry out its own tests there wouldn't be any new cases. Until they deluged us.

At the time, the U.S. had access to merely 4,000 tests. Contrast that with Germany where one company was able to produce more than a million tests for the World Health Organization.

Since then we have learned more grisly details about the CDC's bungled test kits. It declined to use the German test, insisting on creating its own. That cost several critical weeks. When the test kits were finally distributed to the states, the majority produced faulty results. A virologist told Vice that crucial elements of the test kits were "terribly designed." “This is not a difficult problem to solve in the world of viruses. A Harvard epidemiologist told The New York Times in March that "[t]e incompetence has really exceeded what anyone would expect with the C.D.C. .. . This is not a difficult problem to solve in the world of viruses."

The Times reported that, even after the CDC’s test turned out to be flawed, the agency continued to pursue it, despite the fact that another diagnostic test was already in wide use. "With F.D.A. approval, the agency could simply have embraced the test used by the W.H.O.," the Harvard epidemiologist said. "The government could do so even now."

Private attempts to provide tests were squashed. New York City’s Health Department sent a stern letter to health providers, warning that there are no approved blood tests for use at point-of-care facilities to check for coronavirus antibodies, and that use of such tests “may result in regulatory action.” As the Times's Bret Stephens wrote at the time, "Everyone knows tests are far from perfect. But they are urgently needed to track the disease and could have been widely available in the U.S. weeks ago."

The Neo-Liberal message has been that nation based governments are obsolete & that globalism is the future through multilateral treaties. Which is why Brexit, Trump & other populist national movements are so rigorously attacked.

Almost all previous pandemics just happened. SARS was unusually stopped, but a problem solved is soon forgot. Vietnam is a great COVID19 success as a largely monoethnic national socialist state the neighborhood party officer is still an effective agent against enemies of the state.

However the reason Vietnam had its COVID19 enemy was because their timeless Han dominated socialist enemy most favored by globalists, the CCP allowed COVID19 to go global. The WHO just followed Beijing & the the EU just fell back onto nation state borders & structures.

Nation states have been left carrying the burden & as there is no correct answer it will always be at fault according to pundits depending how they pick & chose which they favor & which they don't.

The authors hope that the reader draws the opposite conclusion Big Government is good. But as other commentators suggested this is not the case.

Of course government action is needed to make sure that stockpiles and infrastructure for crises exist that are otherwise economically not profitable.

The Swiss have a system where stockpiles for food are required but are held by private companies. It is a very effective system that does not cost much.

The Swiss also have a very large bureaucracy in public health that was mandated by parliament to erect such a system for protective equipment in case of a pandemic. This was after the SARS crisis but nothing happened. And the protective equipment that was stored in high quantities at private distributors was sent abroad because they could charge much higher prices than they dared to ask from their current customers.

What we need is not "big government" but effective government and some regulations for the private sector that bring the desired results in a cost effective manner. As soon as "big government" does the actual work it becomes less effective.

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A trivial online search shows that the UK government spends over %38 of GDP. Not exactly small. Of course, as I have mentioned before the worst COVID-19 failures are the welfare states of Europe. The success stores are mostly (entirely?) to low-spending nations of Asia.

Wow, is this ever wrong. Italy spends %49.21 of GDP. France spends %53.94 of GDP. By contrast, Singapore spends %15.87 of GDP. Taiwan spends %17.26 of GDP. Most of the COVID-19 success stories are the low-spending nations of Asia. The worst failures have been European welfare states.

At one time a distinction was made between doing the right thing and doing the thing right, between effectiveness and efficiency. Effectiveness must become the criterion for public policies and how we, as citizens, evaluate these policies and those who promote them. Yes, let's be efficient, but only as a matter secondary to doing the right thing. The authors should be complemented for trying to direct discussion to effectiveness.

"The pandemic has laid bare the need for ... symbiotic public-private collaborations...."

One might plausibly contend that the symbiosis here referred to is the nucleus of civilization itself. Take taxation as a case in point. If you deeply believe that the tax regimes we know are part of a machine by means of which wealth is conveyed up to the aristocracy of the day, then very probably you believe that no tax should be other than progressive, i.e. you believe in a conceptually lean compromise between two great principles: the right of the individual to set up and develop a business and the duty of the State to protect everyone from privation, aggression, exploitation, etc. The human tragedy is conceivably to be found in the fact that so many high politicians desire something far removed from such compromise.

Sadly, 'critical capacity'- whether private or public- has made no difference. According to the 2019 Global Public Health Index, the US followed by the UK were best prepared for a pandemic.

Denmark and Finland scored lower than Sweden but Sweden took a different approach and seems to have paid a high price. Some blame may go to expert Scientific advisers but it is easy to be wise after the event.

In Democracies, we must acknowledge that it is our own complacency which causes the hubris of the policy makers.

Excellent contribution to the debate on the need to rethink and restore state capacity and the limits of the endless “rightsizing” of government through spending cuts, privatization and outsourcing - which actually are not necessarily less expansive to the public purse especially government tech solutions.

The crisis underscores the need for effective government, which cannot be outsourced. But size per se does not matter; quality does in terms of agile, open, responsive and data-smart government, as the examples of New Zealand, South Korea and Vietnam show. Interestingly, Singapore has decided to insource its digital capacity in its newly create govtech agency.

In fact, digital resilience and data capabilities have become critical for state capacity and the crisis underscores the need to accelerate the digital transformation of government.

It is true to say that a lack of investment in core public sector capabilities has meant that during this Covid-19 pandemic, the UK government has come to rely on private consulting firms to perform some of the necessary emergency tasks.

However, what is clear is that the policy-making style in the UK has progressively shifted from the consensual governance model to the top-down, impositional government model over the last 30 years or so, and is now set for a reversal in the post-Brexit era, as institutional powers are repatriated from Brussels. But none of this matters if the quality of policy-making and execution by the State is deemed to be unsatisfactory.

To this end, this conservative government spearheaded by the Prime Minister’s chief adviser, Dominic Cummings, is intent on repurposing the machinery of government to make it more responsive to the wants, needs and expectations of ordinary citizens and the left-behind – as opposed to serving the interests of big business, financiers and those who shout loudest in the corridors of power.

But there remains a major hurdle getting in the way of this aspiration.

The government, which is responsible for purchasing goods, services and labour from the private sector is quite easily the single largest buyer in the UK spending £284bn of taxpayers’ money each year, of which about £57bn goes to privately-owned entities specialising in the provision of outsourced public services – an amount which is only set to rise in the coming years, as more and more public service provision work is outsourced by this, and successor governments.

However, there is a question mark over the ability of central government departments to commission and oversee the proper functioning of outsourced service provision contracts to the satisfaction of external auditors, not least, because they simply do not have adequate numbers of suitably qualified and experienced staff on their payroll.

Asked by the Chair of the Public Administration and Constitutional Affairs Committee, Bernard Jenkin on what confidence Parliament can have in government making rational decisions, based upon evidence about whether to outsource or not, the then Comptroller and Auditor General Sir Amyas Morse* who was responsible for auditing Whitehall departments on behalf of Parliament, gave this astonishing reply:

“….. I think there are a lot of areas where Government does not have the capacity to do anything else but outsource. The Government are not set up to deliver all these contracts themselves, and that has been the case for a number of years. Therefore, the capacity, the volume of resource they would have to have internally to do this work, is not there, and has not been there for some time. Not only that, but in many parts of government, the capability of even acting as a prime contractor is not necessarily there. That is not a fault. It has been a choice that parts of government have made over time.”

Sir Amyas Morse, who completed 10 years as C&AG last summer, had a ringside view of the inner workings of government and is therefore extremely well-positioned to comment on the outsourcing venture.

One of the reasons for this almost non-existent capability in Whitehall is that public servants who used to perform these tasks have ended up on the payroll of outsourced public service providers in the private sector, via the “revolving door”.

This is because the Business Model of early pioneers of outsourcing was predicated upon the expectation that there will always be a willing and limitless supply of people coming over from the state sector to execute the contracted work, without requiring any investment to be made in conversion training, as they were already accomplished in the job in the public sector. Of course, this was true during the early days of privatisation, but it is no longer valid today, with the source of cheap and ready labour having all but dried up – which would explain why outsourcing contractors’ businesses are in such big trouble.

This mass influx into the private sector would also explain why staff on outsourcing contractors’ payroll today is made-up entirely of people who were previously in the pay of the State. Which begs the question, what are the tens of thousands of people currently in Whitehall doing?

But the real tragedy about this outsourcing experiment is that people who were previously in the pay of the State have replicated the same failure in the private sector, as recent examples have all too clearly demonstrated.

At this point, it is as well to reflect upon the reasons why the government went down the road of outsourcing public services in the first place – because, people in the pay of the State who were charged with doing this job had, for many decades, failed abysmally to show any improvement in their performance, notwithstanding persistent demands from the governing elite of all political persuasions.@JagPatel3

* See answer to Q496, oral evidence from Sir Amyas Morse before the Public Administration and Constitutional Affairs Committee, Inquiry into Sourcing public services: lessons to be learned from the collapse of Carillion, HC 748, 24 April 2018 http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/public-administration-and-constitutional-affairs-committee/sourcing-public-services-lessons-to-be-learned-from-the-collapse-of-carillion/oral/82098.html

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